Tobacco giants face £225m fine for price-fixing

Cigarette-makers and retailers receive record penalties for collusion

The Office of Fair Trading (OFT) yesterday issued its biggest fine for a breach of competition law, finding two tobacco groups and nine retailers guilty of colluding on cigarette prices.

The consumer affairs watchdog fined the companies a record £225m for fixing pricing levels between 2001 and 2003. Specifically, Imperial Tobacco and Gallaher conspired over promotions and restricted retailers from setting their own tobacco prices.

Imperial, the maker of Lambert & Butler cigarettes, was hit with a £112.3m charge. The company said it planned to appeal against the decision, adding: "Imperial Tobacco looks forward to the appeal hearing, given that this will be the first time in the course of a seven-year investigation that the allegations made by the OFT will be reviewed by an independent tribunal."

Gallaher, the producer of Benson & Hedges, was also found to have broken competition law and fined £50.4m. It had already admitted responsibility after being presented with a statement of objections in 2008.

Simon Williams, the OFT's senior director of goods, said: "Practices such as these, which restrict the ability of retailers to set their resale prices for competing brands independently, are unlawful. They can lead to reduced competition and ultimately disadvantage consumers."

Wm Morrison, Asda, the Co-operative Group, One Stop Stores, Safeway, Shell, Somerfield, First Quench and TM Retail were also found guilty. The OFT said J Sainsbury would not be fined after blowing the whistle, while an investigation into Tesco was dropped after the watchdog said it had insufficient evidence.

Morrisons also said it would appeal. "Morrisons considers the OFT's stance to be illogical and without foundation," the group said. "The practices to which the OFT refers were intended to reduce the retail prices charged to consumers, and the OFT has itself acknowledged that its case is based on a novel interpretation of the law."

Morrisons, the grocer which bought Safeway in 2004, has faced a previous OFT investigation into the alleged fixing of milk prices dating back to 2001. Shell said it may appeal but did not give details on what grounds it might challenge the OFT's findings. The Co-op also said it was mulling over its options.

Asda said it considered the matter closed after co-operating with the inquiry. "As we said two years ago, everyone at Asda is very sorry about what happened," it added. "These events date back almost 10 years and, though we can't turn back the clock, we recognised there were lessons to be learned and we have learnt them. As you would expect, we have co-operated fully with the OFT throughout its investigation."

First Quench, One Stop Stores, Sommerfield and TM Retail all accepted the OFT's charges.